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Organizational Theory,

Design, and Change


Fifth Edition
Gareth R. Jones

Chapter 11
Organizational
Transformations: Birth,
Growth, Decline,
and Death
Copyright 2007 Prentice Hall

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Learning Objectives
1. Appreciate the problems involved in
surviving the perils of organizational
birth and what founders can do to help
their new organizations to survive
2. Describe the typical problems that
arise as an organization grows and
matures, and how an organization
must change if it is to survive and
prosper

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Learning Objectives (cont.)


3. Discuss why organizational decline
occurs, identify the stages of decline,
and how managers can change their
organizations to prevent failure and
eventual death or dissolution

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The Organizational Life Cycle


Organizational life cycle: a
predictable sequence of stages of
growth and change
The four principal stages of the
organizational life cycle:

Birth
Growth
Decline
Death
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Figure 11-1: Model of the


Organizational Life Cycle

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Organizational Birth
Organizational birth: the founding of
an organization
Occurs when entrepreneurs take advantage of
opportunities to use their skills and
competences to create value

A dangerous life cycle stage associated


with the greatest chance of failure

Liability of newness: the dangers associated with


being the first in a new environment
New organization is fragile because it lacks a formal
structure
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Organizational Birth (cont.)


Developing a plan for a new business

Begins when an entrepreneur notices an


opportunity to develop a new or improved
product or service
Tests the feasibility of the new product idea

SWOT analysis

Examine the strengths and weaknesses of


the idea
Decide whether the new product idea is
feasible
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Organizational Birth (cont.)


Developing a plan for a new business
(cont.)

Plan should include:

Statement of the organizations mission,


goals, and financial objectives
Statement of the organizations strategic
objectives
List of all the functional and organizational
resources required to implement the idea
Timeline that contains specific milestones
used to measure the progress of the venture
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Table 11-1: Developing a


Business Plan

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A Population Ecology Model of


Organizational Birth
Population ecology theory: a theory
that seeks to explain the factors that
affect the rate at which new
organizations are born (and die) in a
population of existing organizations

Population of organizations: the


organizations that are competing for the
same set of resources in the environment
Environmental niches: particular sets of
resources or skills

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Population Ecology Model


(cont.)
Number of births determined by the
availability of resources

Population density: the number of


organizations that can compete for the
same resources in a particular environment
Factors that produce a rapid birth rate

Availability of knowledge and skills to generate


similar new organizations
New organizations that survive provide role
models

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Population Ecology Model


(cont.)
As environment is populated with a
number of successful organizations,
birth rate tapers off because:

Fewer resources are available for


newcomers

First-mover advantages: benefits derived


from being an early entrant into a new
environment

Difficulty of competing with existing


companies
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Figure 11-2: Organizational


Birth Rates Over Time

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Population Ecology Model


(cont.)
Survival strategies

Strategies that organizations can use to


gain access to resources and enhance
their chances of survival in the
environment
r-strategy versus K-strategy

r-strategy: a strategy of entering a new


environment early
K-strategy: a strategy of entering an
environment late, after other organizations
have tested the environment
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Population Ecology Model


(cont.)
Survival strategies (cont.)

Specialists: organizations that


concentrate their skills to pursue a narrow
range of resources in a single niche
Generalists: organizations that spread
their skills thin to compete for a broad
range of resources in many niches

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Population Ecology Model


(cont.)
Process of natural selection

Two sets of strategies result in: r-Specialist,


r-Generalist, K-Specialist, K-Generalist

Early in an environment, new organizations are


likely to become r-Specialists

Move quickly to focus on serving the needs of a


particular group
As r-Specialists grow, they often become generalists
and compete in new niches

K-Generalists often move into the market and


threaten the weaker r-Specialists
Eventually, the market is dominated by the
strongest r-Specialists, r-Generalists, and KGeneralists
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Figure 11-3: Strategies for Competing


in the Resource Environment

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Population Ecology Model


(cont.)
Natural selection: the process that
ensures the survival of organizations
that have the skills and abilities that
best fit with the environment

Over time, weaker organizations die


because they cannot adapt their
procedures to fit changes in the
environment
Natural selection is a competitive process

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The Institutional Theory of


Organizational Growth
Organizational growth: the life-cycle
stage in which organizations develop
value-creation skills and competences
that allow them to acquire additional
resources

Organizations can develop competitive


advantages by increasing division of labor
Creates surplus resources that foster
greater growth
Growth should not be an end-in-itself
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The Institutional Theory of


Organizational Growth (cont.)
Institutional theory: a theory that
studies how organizations can increase
their ability to grow and survive in a
competitive environment by becoming
legitimate in the eyes of their
stakeholders
Institutional environment: values
and norms in an environment that
govern the behavior of a population of
organizations
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The Institutional Theory of


Organizational Growth (cont.)
Organizational isomorphism: the
similarity among organizations in a
population

Three processes that explain why


organizations become similar are:

Coercive isomorphism
Mimetic isomorphism
Normative isomorphism

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The Institutional Theory of


Organizational Growth (cont.)
Coercive isomorphism: exists when
an organization adopts certain norms
because of pressures exerted by other
organizations and by society in general

Increasing dependence of one organization


on another leads to greater similarity

Mimetic isomorphism: exists when


organizations intentionally imitate one
another to increase their legitimacy

Environmental uncertainty increases the


likelihood of imitation
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The Institutional Theory of


Organizational Growth (cont.)
Normative isomorphism: exists when
organizations indirectly adopt the norms
and values of other organizations in the
environment

Organizations acquire norms and values


when:

Employees move from one organization to


another and bring with them the norms and
values of their former employer
They participate in the activities of industry,
trade, and professional associations

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The Institutional Theory of


Organizational Growth (cont.)
Disadvantages of isomorphism

Organizations may learn ways to behave


that have become outdated and no longer
lead to organizational effectiveness
Pressure to imitate may reduce the level
of innovation in the environment

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Greiners Model of
Organizational Growth
Greiner proposes five growth stages

Each stage results in a crisis


Advancement to the next stage requires
successfully resolving the crisis in the
previous stage

Stage 1: Growth through creativity

Entrepreneurs develop the skills to create


and introduce new products
Organizational learning occurs
Crisis of leadership entrepreneurs may
lack management skills
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Greiners Model of
Organizational Growth (cont.)
Stage 2: Growth through direction

Crisis of leadership results in recruitment


of top-level managers who take
responsibility for the organizations
strategy
Often turns around an organizations
fortunes
Crisis of autonomy

Creative people lose control over new product


development
Professional managers run the show
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Greiners Model of
Organizational Growth (cont.)
Stage 3: Growth through delegation

To solve the crisis of autonomy, managers


must delegate

Strike a balance between the need for


professional management and the opportunity
for entrepreneurship
Movement toward product team structure

Crisis of control as power struggles over


resources emerge between top-level and
lower-level managers

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Greiners Model of
Organizational Growth (cont.)
Stage 4: Growth through coordination

To resolve crisis of control, managers


must find right balance of centralized and
decentralized control
Top management takes on role of
coordinating different divisions
Attempt to inculcate a companywide
perspective
Crisis of red tape

Increasing reliance on rules and standard


procedures
Organization becomes overly bureaucratic
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Greiners Model of
Organizational Growth (cont.)
Stage 5: Growth through collaboration

Emphasizes greater spontaneity in


management action
Greater use of product team and matrix
structures
Changing from a mechanistic to an
organic structure as an organization
grows is a difficult task

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Figure 11-4: Greiners Model of


Organizational Growth

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Organizational Decline and


Death
Organizational decline: the lifecycle stage that an organization enters
when it fails to anticipate, recognize,
avoid, neutralize, or adapt to external
or internal pressures that threaten its
long-term survival

May occur because organizations grow


too much

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Organizational Decline and


Death (cont.)
Effectiveness and profitability

Assessing an organizations effectiveness


involves comparing its profitability relative
to others

Profitability: measures how well a


company is making use of its resources
by investing them in ways to create
goods and services that generate profit
when sold

Short term profits say little about how well


managers are using resources to generate
future profits
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Figure 11.5: Relationship Between


Organizational Size and Organizational
Effectiveness

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Figure 11.6: Differences in


Profitability

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Organizational Decline and


Death (cont.)
Organizational inertia: the forces
inside an organization that make it
resistant to change

Risk aversion: managers become unwilling


to bear the uncertainty of change as
organizations grow
The desire to maximize rewards:
managers may increase the size of the
company to maximize their own rewards
even when this growth reduces
organizational effectiveness
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Organizational Decline and


Death (cont.)
Organizational inertia (cont.)

Overly bureaucratic culture: in large


organizations, property rights can become
so strong that managers spend all their
time protecting their specific property
rights instead of working to advance the
organization

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Organizational Decline and


Death (cont.)
Uncertain and changing environment

Affect an organizations ability to obtain


scarce resources, thereby leading to
decline
Makes it difficult for top management to
anticipate the need for change and to
manage the way organizations change
and adapt to the environment

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Weitzel and Jonssons Model


of Organizational Decline
Five stages of decline

Stage 1: Blinded: organizations are


unable to recognize the internal or
external problems that threaten their
long-term survival
Stage 2: Inaction: despite clear signs of
deteriorating performance, top
management takes little actions to correct
problems

Gap between acceptable performance and


actual performance increases
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Weitzel and Jonssons Model


(cont.)
Five stages of decline (cont.)

Stage 3: Faulty action: managers may


have made the wrong decisions because of
conflict in the top-management team, or
they may have changed too little too late
fearing more harm than good from
reorganization
Stage 4: Crisis: by the time this stage has
arrived, only radical changes in strategy and
structure can stop the decline
Stage 5: Dissolution: decline is
irreversible and the organization cannot
recover
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Figure 11-6: Weitzel and Jonssons


Model of Organizational Decline

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